J. Crew Nears a Sale to Chairman and Buyout Firms

9:15 p.m. | Updated J. Crew, the clothier of choice for the likes of Michelle Obama, is near a deal to sell itself for about $2.8 billion to the buyout firms TPG Capital and Leonard Green & Partners, people with direct knowledge of the matter told DealBook on Monday.

Under the terms of the proposed deal, TPG — a former owner of the retailer — and Leonard Green would work with the company’s chairman and chief executive, Millard S. Drexler, these people said. The buyout firms are expected to pay about $43.50 a share, a 16 percent premium to the Monday closing price of $37.65.

Deal teams were working through the night, in hopes of announcing a transaction and the company’s earnings before the market opened on Tuesday, these people said, cautioning that the talks were continuing and might still collapse. They requested anonymity because they were not authorized to speak publicly about the talks.

J. Crew, Mr. Drexler and the buyout firms had been in talks for several weeks, and had neared an agreement on Sunday at about $45 a share, these people said. TPG, however, sought to lower the price it was willing to pay on Monday, leading to friction. The parties have since reached a new agreement in principle.

The deal is also expected to include a “go shop” agreement, in which J. Crew will have time to solicit a superior offer. That period is expected to run through the holidays, these people said.

Shares in J. Crew closed up 1.6 percent on Monday, in anticipation of the company’s earnings.

Representatives for J. Crew, TPG and Leonard Green were not available for comment or declined to comment.

A leveraged buyout would be a reunion of sorts. TPG acquired an 88 percent stake in J. Crew in 1997 for nearly $500 million, taking over from the retailer’s founding Cinader family.

At the time, the company, a purveyor of all things preppy, had stumbled, suffering badly from falling sales in stores open at least a year and as a result of a United Parcel Service strike that hurt its catalog business.

Under TPG, the company revived, thanks largely to the arrival of Mr. Drexler as chief executive in 2003. Mr. Drexler was a principal architect of Gap’s rise to retail dominance. The son of a garment worker, he gained the nickname the Merchant Prince for his success at Gap in the 1990s, but he was ousted from the bigger retailer after a decline in sales. (TPG staged an initial public offering of J. Crew in 2006, raising $376 million.)

Mr. Drexler, who goes by the nickname Mickey, masterminded a reinvention of J. Crew as a more fashionable clothier, priced between Gap and Ralph Lauren, and the brand became a staple of fashion magazine coverage. A garrulous booster of his company, he has become widely known for his hands-on, intuitive approach to managing stores, down to the individual outfits on mannequins.

And he has sought to raise the store’s cachet by introducing collaborations with up-and-coming streetwear designers like Mister Freedom and cool-again brands like Belstaff and Alden.

Mr. Drexler remains one of the company’s biggest shareholders, with a roughly 5.4 percent stake as of Sept. 17, according to regulatory filings. Based on the closing price on Monday, Mr. Drexler’s holdings are worth about $128 million. He is expected to roll over his holdings as part of a deal, though he may cash out some of his stock, according to the people with knowledge of the matter.

During his tenure, J. Crew has expanded to 244 retail stores, 79 outlets and a bustling catalog and online business. Among its projects of late are opening a bridal boutique and a men’s shop, both on the Upper East Side of Manhattan.

J. Crew has gained cachet in recent years as a favorite of budget-conscious trendsetters, no more so than when Mrs. Obama began promoting the brand as a wardrober-in-chief. Customers have been known to snatch up J. Crew pieces that the first lady has been seen wearing.

So far, that has been reflected in the company’s financial results in recent years. Its annual net income nearly doubled between February of 2007 and this January, to $123.4 million.

But J. Crew’s earnings growth slowed this year, with revenue dropping in each quarter beginning Jan. 30. Analysts at Stifel Nicolaus wrote in a report on Monday that they expected the retailer to experience lower margins as it and competitors turned to promotions to help move slower-selling merchandise.

The company now carries virtually no long-term debt. That makes it an attractive target for private equity firms, which rely on borrowed money to acquire companies.

TPG recently sold off the last of its stake in J. Crew, and it still owns a stake in Neiman Marcus. TPG and Leonard Green jointly own another retailer, Petco.